You're a small business owner on the prowl for additional capital.
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You have lots of options at your disposal, but you're especially interested in the benefits associated with strategic investment opportunities. The only real questions now are (1) What do strategic investors look for, and (2) How can you make your business more appealing to them?
Clearly strategic investment is not the right choice for every small business. But if you've done your homework and decided that a strategic investment offers the best combination of capital, credibility, and growth potential, then you're ready to take the next step – preparing your business to attract strategic investors.
- Financial return. Like any other investor, strategic investors want to see a return on their investment. If you're hoping to find a company that will invest in your business for purely strategic reasons, then you're probably going to be disappointed. The good news, however, is that strategic investors usually require a smaller equity position than venture capitalists.
- Business growth. Strategic investors look for businesses that have matured beyond the startup phase. Why? Because startup companies haven't proven themselves yet and often lack the strategic value these kinds of investors or are interested in. If your company is still in startup mode, angel investors or venture capitalists may be a better option.
- Exclusive access. Although strategic investors appreciate a financial return, what they're most interested in is gaining exclusive access to content, technologies, or business models that benefit their company and provide one-of-a-kind advantages in the marketplace.
- Temporary benefits. Strategic investors sometimes pursue small business investment opportunities for temporary benefits like market testing or short-term strategic positioning. But if your investor decides to go in a different direction after the temporary benefit has been achieved, it could leave your company vulnerable for future funding. To protect yourself, try to obtain a commitment for future funding at the start of the investment relationship.